Correlation Between Taiwan Semiconductor and AMERICAN

Can any of the company-specific risk be diversified away by investing in both Taiwan Semiconductor and AMERICAN at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Taiwan Semiconductor and AMERICAN into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Taiwan Semiconductor Manufacturing and AMERICAN INTL GROUP, you can compare the effects of market volatilities on Taiwan Semiconductor and AMERICAN and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Taiwan Semiconductor with a short position of AMERICAN. Check out your portfolio center. Please also check ongoing floating volatility patterns of Taiwan Semiconductor and AMERICAN.

Diversification Opportunities for Taiwan Semiconductor and AMERICAN

-0.15

Correlation Coefficient

Taiwan Semiconductor  AMERICAN

Good diversification

The 3 months correlation between Taiwan and AMERICAN is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Semiconductor Manufactu and AMERICAN INTL GROUP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AMERICAN INTL GROUP and Taiwan Semiconductor is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Taiwan Semiconductor Manufacturing are associated (or correlated) with AMERICAN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AMERICAN INTL GROUP has no effect on the direction of Taiwan Semiconductor i.e., Taiwan Semiconductor and AMERICAN go up and down completely randomly.

Pair Corralation between Taiwan Semiconductor and AMERICAN

Considering the 90-day investment horizon Taiwan Semiconductor Manufacturing is expected to generate 1.83 times more return on investment than AMERICAN. However, Taiwan Semiconductor is 1.83 times more volatile than AMERICAN INTL GROUP. It trades about 0.12 of its potential returns per unit of risk. AMERICAN INTL GROUP is currently generating about -0.38 per unit of risk. If you would invest  19,854  in Taiwan Semiconductor Manufacturing on October 8, 2024 and sell it today you would earn a total of  1,007  from holding Taiwan Semiconductor Manufacturing or generate 5.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	42.11%
Values	Daily Returns

Taiwan Semiconductor Manufactu  vs.  AMERICAN INTL GROUP

Taiwan Semiconductor

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Semiconductor Manufacturing are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Taiwan Semiconductor displayed solid returns over the last few months and may actually be approaching a breakup point.

AMERICAN INTL GROUP

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AMERICAN INTL GROUP has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, AMERICAN is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Taiwan Semiconductor and AMERICAN

The main advantage of trading using opposite Taiwan Semiconductor and AMERICAN positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Taiwan Semiconductor position performs unexpectedly, AMERICAN can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in AMERICAN will offset losses from the drop in AMERICAN's long position.

The idea behind Taiwan Semiconductor Manufacturing and AMERICAN INTL GROUP pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.